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description

Costco Companies, one of the major players in the wholesale club industry, has developed a new class of membership that offers discounted services--auto, health, and home insurance, business credit card processing, real estate services--in exchange for a higher annual fee ($100 vs. $40). The case poses two questions: 1) how should the new membership be marketed, to whom, and how much should be spent on the effort? and 2) what are the potential risks and benefits for Costco, which generated $22 billion in 1997 selling products in bulk, in offering services? Which question is emphasized depends on whether the case is taught in a marketing or a retailing course.

learning objective:

In a marketing course, the case is used to understand to what extent a retail brand name can be extended beyond its roots. What is it about a brand that allows it to be extended? In a retailing course, the case can be used to understand the economics of the Costco model and see whether services are a viable addition to a membership-based product retailer.